DETROIT (Reuters) – For more than 25 years, the contest among Japanese car makers in North America has been a two-horse race, led by Toyota with Honda in second place and Nissan in the rear view mirror -trailing far behind. Not anymore.

Nissan <7201.T>, thanks to the launch of models that are getting high marks for styling, its wider range of vehicles and aggressive discounting, is catching up with Honda. In the next couple of years it could easily pass its rival in U.S. car sales for the first time since 1987.

It isn’t hiding its ambitions. “I’m sure that we will overtake Honda,” said Jose Munoz, the chairman of Nissan North America. ”How long is it going to take us? Time will tell, but it’s going to happen.”

While he says the company isn’t obsessed with leapfrogging Honda, Munoz is targeting a 10 percent share of the U.S. market by 2016.

Its share in the first seven months of this year was 8.6 percent, up from 7.4 percent in 2009. Honda’s share, meanwhile, has slipped to 9.1 percent, the lowest since 2006, from a peak of 11 percent in 2009. Toyota <7203.T> currently has about 15 percent of the market.

Honda <7267.T> had been the trend setter. The first Japanese company to build cars in the U.S., it built its sales and manufacturing footprint so rapidly across the United States that Honda executives had a term for it – “crazy speed.” the company gained a reputation for high quality, and went out to consumers with slogans like “We Make it Simple” and “Honda: The Power of Dreams.”

“DROP-DEAD GORGEOUS”

It “used to stand for high quality and refinement,” observes longtime auto industry consultant Maryann Keller. “Now, I’m not sure if you ask the average consumer what does Honda stand for, they could tell you.”

Honda may have redesigned its best-selling midsize Accord and addressed complaints about its popular Civic compact, but neither model is considered a style-setter.

“The cars are high quality, they’re very reliable, but not necessarily exciting,” says Dave Sargent, vice president, global automotive, at research firm J.D. Power. Still, he adds, “the image Honda has for quality and reliability is notably better” than Nissan’s.

However, Honda argues Keller “can no longer live on the old quality mantra. It’s not enough because everybody’s got pretty good quality.”

Nissan was once regarded as stodgy with occasional quirky moments.

But driven by CEO Carlos Ghosn and global design boss Shiro Nakamura, Nissan has sharpened its emphasis on distinctive, yet appealing design, while crafting a more cohesive identity for the company’s mainstream Nissan and premium Infiniti brands, pegged largely to sporting performance.

“It all comes down to product and styling,” says Bob Lutz, former vice chairman and head of global product development at General Motors Co <GM.N>. Nissan, adds Lutz, “has some drop-dead gorgeous cars,” including the increasingly popular Altima Sedan, a style leader in the midsize sector.

Honda remains heavily dependent on the Accord, the Civic and the segment-leading CR-V crossover, which account for 69 percent of Honda’s U.S. sales this year.

In contrast, Nissan’s top three sellers, the Altima, the compact Sentra and the crossover Rogue, make up 52 percent of its U.S. sales.

That dovetails with Nissan’s broader strategy of diversification, with a product range that numbers 27 models in the U.S., compared with 16 for Honda.

INCENTIVES

The outcome of the current sales tug-of-war is critical for both companies, and not just for bragging rights. The North American market, including Canada, accounted for 41 percent of Honda’s global revenue in the April-June quarter and nearly 49 percent at Nissan.

Honda claims Nissan, whose sales have risen 13 percent so far this year, has been goosing its U.S. market share with lower sticker prices, hefty incentives and discounted sales to fleet customers.

“We don’t pursue a lot of short-term sales tactics to try to gain market share,” said Jeff Conrad, senior vice president and general manager of American Honda Motor Co’s Honda Division.

According to research firm TrueCar.com, Nissan’s per-vehicle incentives in the first half of this year dipped slightly to average $2,497. Honda’s incentives jumped 26 percent over the same period to $1,969, but were still well below Nissan’s average.

Honda also held firm on pricing and margins, with its per-vehicle transaction prices in the first half averaging $27,093, according to TrueCar.com, while Nissan’s average prices plunged 7 percent to $26,150.

The numbers suggest that Nissan’s final push to overtake Honda in the U.S. could be costly, depending on how much profit Ghosn and his executive team are willing to sacrifice to attain that goal.